The Internet is allowing the consumer to directly purchase product from its creator, flattening out most business models by eliminating the middleman: the distributor or publisher. Industries that accept this impact and explore new business models will survive, others (such as the recording industry) will fight it or die. “The Wrap” published an excellent article detailing why the traditional television business, like music, is dying. I recommend that you read it before continuing here.

All businesses go through the same downward spiral when they let the accountants, lawyers, and Wall Street take priority over the customer and brand. No model operates forever, and the cycle can occur in any business. It goes like this: (1) The company experiences declining income from what they are use to receiving. (2) Rather than adapt their business or look for new opportunities, they reduce expenses and the quality of their product to the customer. If you’re a restaurant for example, you cut back on complex dishes and serve food made with lesser expensive ingredients. A business analyst I know calls this “robbing your customer” because it was you who set the original expectations of quality and trust. (3) Sales decline further because the product quality and uniqueness attributed to your brand and supported by loyal customers vanishes (4) The company eventually collapses or gets purchased.

This is what is happening to television. Cable meant people were offered more programming choices. VCRs and and DVRs meant they were freed to watch their programs at their convenience. And the Internet offers two more things:

Anyone can produce and distribute content. Quality is based on talent, passion, and ideas — not money, and anything from a 3 minute video made by students, to a web series like “The Guild”, to special big budget web episodes of popular shows like “Battlestar Galactica” can attracted a large following. It’s no longer true that something is too inexpensive to be attempted.

People can watch an even larger variety of content, including content that is not available elsewhere at the time, when they want ANYWHERE, including their phone. A La Cate viewing is taken to its logical conclusion, and physical location becomes unimportant.

It’s not hard to understand that people are attracted to quality. They’ll accept commercials, but not lots of them, or lengthy ones, or insulting ones, or “in your face” interruptions. Cable and broadcast television have destroyed all sense of viewer immersion by frequently displaying distracting animated blips during a show. And if you already have commercials, don’t expect people to also pay viewing fees. Not unless you are only going after the audience segment that wants instant gratification rather than waiting a few days or forever rather than pay. This is why Hulu became popular — it was free and the commercial interruptions were few and only 30 seconds long.

People are viewing content more and more based on what they hear from others they trust (whether it be friends and family, or the celebrities they are fans of), or what they discover is already very popular with the public. With so much content available, and the ability to watch it at will anywhere, large audiences only exist in real-time for the premiere episode broadcast of an extremely popular show or a live event. Otherwise they are spread so thin that the old ratings and time-targeted ad methods of collecting large money at once are gone.

So what does the new model look like? It’s not hard to see where all this is going:

People want to watch content on any device they choose, especially if they’ve already bought it in some form. If they buy content, it’s implied they own viewing rights and it must work everywhere.

They will not pay “per view”, but may pay “per episode”. If someone pays for a show or an episode, and wants to watch it again, they should be able to.

People want their content free, and don’t mind polite, short advertising or being asked for voluntary contributions to get it. Most people are willing to wait a week to see a new episode if it means they can then watch it for free. Most are also happier if THEY judge the value of the product.

The people that are willing to pay for content are those that must watch a new episode of their favorite program immediately, or are watching a live event. Some will also pay a subscription fee to avoid all commercials,

People are not happy to pay for content AND be forced to see a commercial. It feels like greed or double-dipping into their wallets.

Quality content can come from anywhere, and creative people starting out greatly value recognition and control as a form of payment. Broadcasters should be constantly on the lookout for people already creating popular content. There is no risk, and you already know what you’re getting.

Content can be proposed or improved by using social media to communicate with your existing or prospective audience. One reason the “Lord of the Rings” movies were so successful is that the fans of the books were included in some of the creative accuracy. “Crowd Sourcing” is helping software development and merchandise create products more likely to be widely popular and with a built-in consumer base already present. This can work for broadcast programming also. Imagine being able to vote on what favorite book series gets next made into a movie?

Income is going to resemble the micro-payment model; meaning that instead of collecting a lot of money at once from huge audiences, it will be very small sums of money from a large number of diverse sources over a period of time.

The cost of professional quality video equipment and editing tools is becoming ridiculously affordable to the average person. Cameras that cost over $30k years ago are under $3k today and dropping fast, plus their quality is higher and they are a fraction of the size and weight. Even today the mass market holds video cameras capable of producing any High definition video they’d want to upload. The only real barrier is talent.

Social Media will play a large part in business. A single consumer has a voice that can reach thousands of people, so whether they like something or not will be heard. This will force products to be the best they can.

It is hard to see how an old school “network station” can survive given these realities. Cable and satellite stations that specialize on diverse content geared toward a common audience (such as a sports channel or comedy channel) may have a better chance. Network stations already dilute their brand by syndicating their older show episodes to other channels. The real brand is now the show itself or it’s creator. Even today, people associate quality and franchises with show like “Battlstar Galactica” or “House” or creators like “Joss Whedon” or “George Lucas” much more than with “NBC” or “Comcast”.

Another thing that is changing is that the Internet is becoming the launching platform for shows. “The Guild” received financing from Microsoft for exclusive initial distribution on their networks. I can see a future where popular Internet shows similar to “Chad Vader” or “The Joker Blogs” start off as personal Internet projects, and as they gain popularity they receive financial support from larger organizations wanting to share revenue (as long as the creative control and the original audience are not alienated).

Generation Y did not grow up watching television like previous generations. They watch almost all of it on the Internet; usually limited to only the few shows or movies they are interested in following. Most for free; but sometimes paying for a download if it was an episode that originally aired for free and was missed, or they want to own it. They are also playing online games a lot, and producing content of their own at an ever increasing rate, including their own Internet broadcasting channels and podcasts. Their cost? Practically $0.00

Overall is means that the industry is going to continue to flatten, and be less driven by spending lots of money for episodes in advance, and more purchasing product that has already proven to be successful. Quality is going to come fom hard work, computer usage, and talent rather than large budgets and expensive actors. By the way; expect union actors to be needed less as well. When you have computers, and the world as your filming ground, why spend tons of money in Hollywood for an independent project?

For the consumer, this is all good news. You’ll have more content, from a larger pool of creative people, for free or little cost. For television, the upside is that if you are willing to work at it you’ll find quality product with a built-in audience and creative people that will share revenue for a mixture of income and recognition and control. The downside is that you’ll have less control, and your added value to this process is mostly financial support, merchandising, and advertising help. However there is nothing stopping you from also starting programs as inexpensive Internet shows and clips and working up from there like everyone else, or creating your own versions of Stickam and UStream collective channels. You have the advantage of a brand to leverage recognition and acceptance. I can see a future where someone creates a popular video series on YouTube, and the “Fox Streaming Network” offers to host it on their site as a channel in exchange for sharing the advertising revenue, and leveraging the show’s existing audience to try other things.